The old thought experiment about how a butterfly flapping its wings in China can cause a tornado on the other side of the world has become economic reality. The effects of the Chinese government’s attempts to contain the spread of the new strain of coronavirus are rippling through global supply chains. For the moment, the world economy has been relatively robust. That will not last if the virus continues to proliferate.
Where politicians failed to decouple the Middle Kingdom from the west, mother nature is succeeding. The introduction of tariffs by US president Donald Trump attempted to renationalise supply chains and encourage businesses to bring jobs and factories back to the west. Apart from a few companies moving to other Asian economies, such as Vietnam and Thailand, to avoid the duties, trading patterns have remained largely in place, although US-China volumes declined slightly.
Now the extended lunar new year holiday in what is, on some measures, the world’s largest economy could start to shut down western factories that depend on Chinese components. Efforts by Beijing to contain the virus include restricting non-essential trips outside in Wuhan, the city where the outbreak originated, and closing factories in nearby provinces.